VC & PE Glossary
What Is Runway?
Updated
Definition
Runway is how many months a company can operate at current net cash burn before cash runs out — cash balance divided by monthly net burn.
Useful for: Founders, Investors
Runway is the estimated time until a company exhausts cash at its current net spending rate.
How it works
Formula: Runway (months) ≈ Cash & equivalents ÷ Net monthly burn.
Net burn uses actual cash movement — payroll, vendors, debt service, minus customer collections and other inflows. Exclude non-cash accruals.
Example: $3.6M cash, $300K net burn → 12 months runway. Hiring or marketing ramps change the denominator every month; recalculate on cash-basis monthly.
Founders often maintain scenario runways: base, downside (slower sales), and freeze (hiring stop). Investors watch fully diluted runway after planned hires in the board-approved budget.
Rule of thumb: begin serious fundraising with 9–12+ months runway — many closes take four to six months and slips happen.
Why it matters
- Founders: Runway drives every major decision — hires, office, experiments. Extend via runway extension tactics before crisis mode.
- Investors: Sub-six-month runway without lead term sheet is a red flag; may require insider bridge or restructuring.
Common mistake
Using gross burn while ignoring revenue collections, or forgetting one-time liabilities (tax payments, annual prepaids) that create cash cliffs within headline runway.
Related ideas
See also burn rate, runway extension, runway crisis, and bridge round.
Related terms
- Burn Rate — Burn rate is how fast a company spends cash — usually measured as net cash outflow per month after revenue, showing how long existing cash will last at current spending.
- Runway Extension — Runway extension is any action that increases months of cash remaining — cutting burn, raising capital, deferring payables, or improving collections without changing the core business model.
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Common questions
Short answers for founders, LPs, and operators